Advertisers To Spend $10 Billion This Week On Broken TV Model

This week, advertisers will sit down with the broadcast TV networks and hash out their “upfront” ad buying deals for the year.

The talks are one of advertising’s huge, dramatic set-pieces. As Ad Age describes it, “possibly as few as 40 people from the networks, agencies and brands will go into backrooms and decide how $9 billion of the $62 billion U.S. TV ad market will be spent next year.”

Networks are expecting, again, to see TV ad spending rise. CBS chief Les Moonves is bullish, and analysts expect the network may get 7-9% price increases. Some believe more than $10 billion will get spent.

Oddly, the networks want those increases even as the viewing audience itself dwindles. Goldman Sachs estimates that 17% of the 18-to-49-year-old demographic simply stopped watching broadcast TV in winter 2012-2013, the New York Times notes.

On its face, this doesn’t make sense: Why would advertisers pay more to get less?

The usual explanation is to do with supply and demand. Although TV’s numbers may be dwindling, it still has a massive audience. And with the fragmentation of the audience across thousands of different online and digital venues, there remain very few vehicles who can reliably deliver eyeballs in the millions, night after night. The supply of big audiences is getting smaller, in other words, and thus prices increase.

But there are signs that this won’t last, and that broadcast TV may be facing a crisis. The Times said:

“The networks are getting picked at from every direction,” said Jessica Reif Cohen, the senior media analysts at Bank of America Merrill Lynch. “This year was the tipping point,” she said, “when the television ratings really fell apart.”

Put that together with competition from Aereo, which reroutes free, over-the-air broadcast signals onto computers and iPads where people can watch TV without paying for cable. News Corp. has already said it will stop broadcasting Fox TV, and go cable-only, if it cannot extract transmission fees from Aereo. (Most people watch “broadcast” TV on cable or satellite, where stations get fees from subscribers.)

It’s not just Aereo of course. It’s Hulu and YouTube and Netflix and a hundred other alternatives to watching TV.

Think about that: The model is so broken that a major broadcaster has threatened to stop broadcasting in order to save itself.

It begs the question: With declining audiences, and dozens of new ways to watch shows without paying for cable, how long with these $10 billion meetings last?